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Conditional Cash Transfers in Brazil, Chile and Mexico: Implications for Inequality

Author: Sergei Soares
Date: 2007
Size: 24 pages (265 KB)

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Summary

What impact do conditional cash transfers (CCTs) have on inequality? This paper investigates the effects of CCTs in Brazil, Mexico and Chile. CCT programmes helped reduce inequality in all three countries between the mid-1990s and mid-2000s. They are a low-cost way of reducing inequality that can be replicated. However, the total amount transferred by these programmes is modest, and their expansion is limited by political, administrative and budget constraints.

CCT programmes in Latin America are increasingly appealing both to governments and multilateral and bilateral agencies. Unlike some other social programmes, evaluations of CCTs show effectiveness in reaching many of their objectives. It might be too early to judge long-term impact on development, but evaluations note significant impacts upon schooling, health, infant mortality, child labour and poverty. CCTs have also generated expectations in areas where they were not explicitly intended to have impacts, including the chronic inequality afflicting Latin America.

A measure of inequality called the Gini index was used to investigate impacts of CCTs on income inequality in Brazil, Chile and Mexico. CCTs proved an important inequality-reducing factor in all three countries. In Mexico and Brazil, they were surpassed in importance only by labour income.

• The contribution of CCTs to the fall in inequality was disproportionately high given their small share in total income. They accounted for around 0.5 per cent of total income in Brazil and Mexico, and much less in Chile. Yet CCTs were responsible for 21 per cent of inequality reduction in Brazil and Mexico and 15 per cent in Chile.
• In Brazil and Mexico, inequality is falling mainly due to reduced concentration in labour incomes. CCT programmes also make an important contribution. Concentration of social security incomes is increasing, preventing inequality from falling more.
• In Chile, the labour market is driving up inequality but the social security system is compensating for the market's poor performance. CCTs play a very minor role in the dynamics of inequality in Chile. The inequality-reducing effect of CCTs might become more significant if their share of total income increased.

While this study does not allow for detailed recommendations for redistributive policies, there are general implications for strategies aiming to reduce inequalities. While the factors driving the dynamics of inequality in Brazil, Chile and Mexico were different, some characteristics were shared by all three. One common finding is that CCTs are a very low-cost way of reducing inequality that can be replicated in other countries.

• Even where CCTs are consolidated and cover a significant share of the population, they could still be amplified before they begin to represent a heavy fiscal burden.
• CCTs are not a cure-all and cannot be expanded endlessly. Expansion is limited by political, administrative and budget constraints.
• Labour and social security incomes determine most of the inequality in these three countries and others. Therefore, substantial reductions of inequality are not likely to be achieved without attention to employment policies and reversing the inequality-increasing bias of social security systems.

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Source: Soares, S., et al, 2007, 'Conditional Cash Transfers in Brazil, Chile and Mexico: Implications for Inequality', Working Paper 35, International Poverty Centre, United Nations Development Programme, Brasilia
Organisation: International Policy Centre for Inclusive Growth (UNDP), http://www.undp-povertycentre.org/